Activity Based Costing and the MFI’s Performance By TAMELA Mouafo Alain

 “Until recently, microcredit critics and advocates alike focused attention on the pricing side of cost recovery without adequate attention paid to cost reduction strategies and efficiency” (United Nations, Blue book, page 58)

 

Indeed, talking about MFI performances and their aptitude to contribute on poverty reduction in the world, the literature always look for pricing site notably the price of different services for customers. Some (MFI critics) trying to argue that financial services are expensive enough for the MFI’s costumers ; others (MFI advocates) says that MFI’s costumers are able to support higher interest rate while keeping important profits to increase their activities.

Without the intentions to bring together the two ideas, we just tried in our memoir to look for the cost reduction strategies efficiency; we can found out how the MFI can optimize the allocation of their inputs by insuring the fair prize to their customers and perennity to their activities.

The cost reduction side first concern internal analysis and the management control offer a lot of tools that can be used for. Among all, the Activity Based Costing is a cost allocation method that enables an institution to first, split up his operating system in to a reasonable number of activities (that must be able to resume the entire system), and then allocate the different expenses made during a showed period (a month, quarter, half year, etc.) to these activities using   a distribution base called indicator. The guiding principle is that activities consume charges and products consume activities.

To implement the tool, we choose a Cameroonian institution (the one who accept to receive us and to provide all the data needed by our work, thanks to ACEP Cameroun SA). The main question we tried to answer is: how ACEP Cameroun can use the ABC method to increase his performances? And from that question deduce 4 secondary questions:

• How ACEP Cameroun can use the ABC method to calculate the cost of his products?
• What are the activities that consume the more important part of charges?
• How ACEP Cameroun can reduce the amount of charge consumed?
• What are the others uses of product costing for ACEP Cameroun?

In spite of difficulties we faced because of the fact that the management information system of ACEP Cameroun where not prepared for this type of operation, we made it, helped by the management control service. Here are the results we found out:

• We identified and evaluate 21 activities, of which 4 consumed near of 80 % of charges;
• With gross margin of about USD 400 000.00 (four hundred thousand US dollars) for the first half of the year 2015, it was not possible for them to know the effective origin of that (as products are concern). After our work, it is established that they had profit margin on three products (“prêts pour activités génératrices de revenus” that produce 93.5%; “credits à la consummation produce 2.8 % and “gestion des épargnes” produce 12 %) and sustain a loss on two of their products (“prêts aux agents de l’institution” that destroyed 7.1 % and “transfert d’argent” that destroyed 1.2 %);
• We showed the possibility to reduce different products costing by using a part of Activity Based Management technique;
• Finally we talked about how to use the result obtained to do budgeting (Activity Based Budgeting), and to improve his marketing politics (pricing, promotions organizations, commercial bargain with customers, etc.).

My memory is like a departure for me, because I am seriously interested by research in financial inclusion, especially on business management side. Special thanks to DAAD that permit me to follow my passion even far away from my native country (Cameroun).

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